“Dude, what do you think of ARMH?”
“Is that the company with tablet chips that Microsoft (MSFT) said it would develop applications for?”
“Dude, I don't know. There was some big news today. What do you think?”
Here was my response:
On the basic quantitative level, nothing stands out about ARM Holdings plc (ARMH). Digging a little deeper, we see that ROIC is likely to increase over the next few quarters from an already healthy 13.3% to our forecast of 16.8% by December 2011. But you are paying a lot for that growth — a 3.2x PE-to-growth ratio on CY2011 EPS of $0.41 and a consensus 5yr growth rate of 13.5%.
If you want to buy a growth stock, investors are much better off buying an Amazon.com Inc. (AMZN). If you want to buy a mid-cap low-power chip stock, investors are probably much better off buying a NVIDIA Corp (NVDA).
With AMZN you are only paying 1.8x EPS/28% expected growth. With NVDA you are only paying 1.3x EPS/15.5% expected growth. Note, these 5yr forecasts are almost always wrong but they are a place to start.
ARMH may have a nice story, but it seems like there are better risk/reward alternatives out there. I would even suggest shorting ARMH against a long position in NVDA.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
Comments
Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.